The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Social Security now in permanent deficit, Medicare Trustees admit the system is in trouble, liberal ‘Think Tank’ fails at statistics in deficit denial…

Posted by iusbvision on May 18, 2011

The system is not sustainable. The bureaucracy is huge and government employees earn 30-300% higher than their private sector counterparts and have gold plated benefits. Every dollar that goes to a bureaucrat who is not accountable to you and has no incentive to be efficient is another dollar that is not used for someones good care.

Government programs should not be “unionized job programs to get union dues to the Democrats” first, and programs people use second.  We cannot afford to carry on the status quo any more if we want to deliver on promised benefits. Unless we have reform such as the Paul Ryan plan, the system will blow up and the government reports show it.

Social Security

Heritage:

The debate about whether Social Security faces a problem and needs to be fixed is over. The 2011 trustees report, which was released this afternoon, shows that the program already faces massive permanent annual deficits. In 2010, Social Security spent $49 billion more in benefits that it took in from its payroll tax. This year, that deficit will be approximately $46 billion.

Now is the time to focus on solutions. Instead of just blindly defending the current program, both Congress and the Obama Administration should propose comprehensive programs that permanently fix Social Security. It is one thing to oppose a solution; it is another to come up with a plan and fix the problem.

Social Security Problem $1.2 Trillion and One Year Worse

In net present value terms, Social Security owes $9.1 trillion more in benefits than it will receive in taxes. The 2011 number consists of $2.6 trillion to repay the special issue bonds in the trust fund and $6. 5 trillion to pay benefits after the trust fund is exhausted in 2036—a year earlier. This is an increase of $1.2 trillion from last year’s report, which also reflects several changes to assumptions and methodology.

A key change in this year’s report is that Social Security is predicted to run cash-flow deficits from now on. The immediate cash-flow deficits are largely due to the effects of the recession on its finances. The recession increased the amount of benefits paid out by Social Security as older workers who have lost their jobs choose to file for benefits earlier than they might have otherwise. Meanwhile, younger unemployed workers are unable to pay Social Security taxes, while workers who suffer a drop in their income pay lower amounts.

Net present value measures the amount of money that would have to be invested today in order to have enough money on hand to pay deficits in the future. In other words, Congress would have to invest $9.1 trillion today in order to have enough money to pay all of Social Security’s promised benefits through 2085. This money would be in addition to what Social Security receives during those years from its payroll taxes.

Medicare

Heritage:

The just released 2011 Medicare trustees report does not contain any big surprises. Much of what the trustees say in this report they have said before: Medicare poses enormous challenges for patients and taxpayers alike, and its financial condition continues a downward slide. Some key findings:

  • Medicare’s unfunded obligations increased by $2 trillion. A key indicator of the true cost of the program is the cost of the promised benefits that are not financed by dedicated revenues. Using their standard 75-year projection (2011–2085), the trustees estimate this year that Medicare benefits promised that are not paid for amount to $24.6 trillion, compared to their projection of $22.5 trillion last year. These and other projections in the report are based on current law, including the official assumption that the estimated $575 billion in savings from Medicare provider cuts under Obamacare will be sustained, as well as the 29 percent reduction in Medicare physician payments in 2012. The Medicare trustees concede the point: “Although the long-term viability of some of these provisions is debatable, the annual report to Congress on the financial status of Medicare must be based on current law” (emphasis added). Different assessment and different accounting techniques, of course, can yield different estimates of these long-term costs. Based on an alternative scenario of projected costs and spending that many analysts considered more realistic, the Medicare actuary in 2010 estimated the long-term Medicare debt at $34.8 trillion. The Medicare actuary has yet to offer his alternative assessment for 2011.
  • The financial condition of the Medicare Part A trust fund is worse. The Hospitalization Trust Fund—the part of the program that pays seniors’ hospital bills—is in worse shape than reported last year. The Hospital Insurance (HI) Trust Fund is going to be exhausted in 2024 rather than 2029. While the fund has started running big annual deficits ($32 billion in 2010 and $34 billion in 2011), the five-year acceleration of the fund’s exhaustion has been aggravated by a combination of higher hospital spending and the consequent reduction in the payroll tax receipts resulting from the economic downturn. When the HI fund is exhausted, obviously it cannot pay benefits. Congress would have to replenish it with higher taxes. One more point: It should be noted that the most recent Congressional Budget Office assessment of the trust fund (March 2011) is more pessimistic and projects an exhaustion in 2020.
  • The “Medicare Funding Warning” has been issued again. Under current law, the Medicare trustees are required to issue a Medicare Funding Warning. This means that general revenues will account for more than 45 percent of Medicare’s total outlays. The 45 percent threshold for such funding, in contrast to dedicated revenues, is officially “excessive” under current law. In this year’s report, the statutory threshold has been reached again this year, as it was last year, and the President is required to develop a proposal to transmit to Congress to deal with the problem.

This year’s trustees report only confirms the seriousness of the financial challenge posed by an unreformed Medicare program. Over the full 75-year budget window for the entitlements, about 90 percent of the growth of Medicare and Social Security is going to occur by 2035. The baby boom generation, to be supported by a relatively smaller workforce, will drive costs to new levels. That is indeed why The Heritage Foundation’s comprehensive reform proposal, Saving the American Dream, takes on an even greater urgency.

Leftists in Deficit Denial

Heritage:

Liberal Think Tank Fails Statistics

A chart created by the Center on Budget and Policy Priorities (CBPP) has been circulating among liberal bloggers such as Ezra Klein, James Fallows, and Andrew Sullivan.

The chart, seen to the right, purports to show that the next decade’s deficits are entirely the result of the 2001 and 2003 tax cuts, wars, bailouts, recession, and stimulus.

Their methodology fails statistics 101.

Imagine a basketball team that loses 100-98. It would make no sense to cherry pick one single basket by their opponent and blame it for 100 percent of the loss – letting all other baskets scored off the hook. Yet that is essentially what CBPP is doing.

See the rest of the story with charts and evidence HERE.

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